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The rise and fall of the Economic Council and a new way forward

Some 50 years ago, an Act of Parliament created a new permanent institution, the Economic Council of Canada. The general economic climate was considerably different back in 1963. Economics had become a high priority subject and economic policy seemed to work better if backed by economic research. 

We then had the big econometric models and statistics that were providing reasonable forecasts, and economics per se was not regarded as particularly controversial.

For the technical economist there were general equilibrium models that “worked.” When political or sociological objections were raised, they could easily be shouted down by a show of mathematics. So it was natural for the Government of Canada to offer good applied economic research on demand. The Economic Council was also meant to be a “consensus building institution” with respect to economic policy. But the precise meaning of this process was not officially spelled out. We will return to this important matter again.

Anyone who lived through the 1970s and 1980s would know how the situation changed. 

The old reliable economic trade-off between full employment and price inflation no longer worked. The post-war trend towards disparate income and wealth inequality began to surface. Even the basis of general economic equilibrium theory and its supposed properties were shown to be invalid – problems of dynamic instability. 

Public opinion began to turn against economics as a credible science. All this in addition to controversial issues such as environmental degradation.

Other departments in Ottawa quickly moved to constitute a competitive market, often overlooking the many accomplishments of the Economic Council over a 30 year life span. But good riddance to the Council’s big econometric forecasting model that became obsolete, replaced by simpler single equation affairs throughout North America. The consensus building process of the Economic Council tended to break down when the underlying economic research was not providing credible support.

Which leads to the key question of this article: Is it possible to formulate a proposal that would put economic research, together with consensus building, back on track in Ottawa, presumably via some form of public/private support? A new body or research school that provides economic policy and program-makers with credible, intellectual material needed to perform their tasks in a fully informed and transparent manner?

I think the answer to this question is positive; but only with a new vision of the way forward. That is, a new economic research school would have to go beyond the past history of the Economic Council.

A fair amount of economic research is being performed via private individual initiatives, largely stimulated by the global computer revolution that puts unlimited arrays of data and documents at the finger-tips of the economic researcher. Good research can no doubt be done without significant structural support. But will such research end up in the “right hands” at the “right time”? And, who will put it all together?   

This raises the all-important problem of attention.

Here I would suggest learning from the activities of the Paris School of Economics with the establishment of a research school of economics at the University of Ottawa. The bililngual university is an ambitious university very concerned with its official international ranking and features a particularly strong social science faculty, with senior members drawn from the Canadian public service. The emphasis in economics is on applied economics with policy implications. Their approach is meant to be politically neutral with special attention to the long term. And their experience in the public services makes the University of Ottawa uniquely sensitive to peculiar Canadian problems of administration. 

Establishing an economic research school there would not be meant to overlap the short-term, politically motivated economic research performed within government departments. The University of Ottawa is a prototype Canadian national institution with a fully bilingual structure with provincial funding. But an economic research school could also earn funds through private contract research similar to practices at Statistics Canada and the National Research Council.

This would give the university an element of independence needed to withstand attacks of “political football”, when inevitable differences of opinion arise. It would also give the university environment a unique source of attraction and stability needed to be the home of a permanent body dedicated to economic research and related consensus building.

My feeling is that university officials would welcome overtures from the government and major Canadian political parties for the establishment of an economic research school. Political representatives would then be able to seek a permanent institute free of political bias and deeply involved in major Canadian economic problems. However, there is still the problem of sorting out the Board of Directors and simulating a proposed “consensus building” nature of this economic research school.  

This is where a new research school could learn from the “rise and fall” of the Economic Council of Canada.

The Economic Council had a board of directors appointed by the government whose duty was to monitor and offer approval or disapproval of the Council’s activities. The directors were supposed to represent a cross-section of the national economy and were drawn from functional, sectoral and regional interests. They were not economists nor statisticians and they served part-time for periods of several years. Generally speaking, the directors tried to keep the Council’s activities down-to-earth and policy relevant. They voted to approve or disapprove the Council’s main policy recommendations as appearing in the Annual Report and Research Project Statements. When the eirectors disagreed they were allowed a Minority Report that, sometimes, could be quite critical.  

A lot of the Council Chair’s time was spent trying to appease directors. The Chair’s prime goal was to build a “consensus” through dialogue among directors and staff. To my knowledge, no systematic approach to consensus building and dialogue was utilized.

After several years experience observing this situation, I applied to the Chair for permission to investigate the whole problem of "consensing" methods and doctrine.  A 30-page discussion paper entitled “Consensing Methods and Problems: An Introduction”, was released in April 1976. Reactions from outside were generally favourable, but it was stressed that my approach was rather academic and did not contain a case study. An application to proceed with a case study (measuring the nature and trade-offs of conflicting interests) was unfortunately turned down.

It is conceivable that a proposed Ottawa economic research school will also feature a Chair and Board of Directors. Once again, “consensus building” will be the rules of the game. The difference this time is that we now know much more about the “consensing game”. 

We must distinguish situations where “consensing” may or may not be relevant. The term “consensing” can have any of three possible meanings. The nature of dialogue could be constructive or counter-constructive. Our analysis focuses the question of why the establishment of a permanent institute is so important. For Canada, the problem of indicating functional representation of diverse interests is crucial. New kinds of expertise are called for.

I hope readers will examine the discussion paper above and also look at more recent analysis by economists working in Israel,  Norway and Oxford. It is only fair to note that the field of “consensing” and closely related disciplines have become quite technical. There are economic rules to guide constructive dialogue for consensus building (called Normal Bayesian Dialogues).

The existence of high intellectual standards at the University of Ottawa are vital for both the economic research and consensus building of the proposed economic research school. A lot will depend on the sophistication of the appointed Chairman and careful selection of Directors and technical expertise. But this is at least a vision of the way forward to bring credible, practical and accessible economic research expertise back to Canada.

Harry Postner is an economist, formerly with the Economic Council of Canada. Should readers be interested in seeing the full version of the discussion paper referenced in this article, they are encouraged to email Mr. Postner directly at the following address: rmacinnes6808 [at] bell [dot] net. 

Photo: Tiffany Bailey. Used under a Creative Commons BY 2.0 licence.